Falkland Islands explorer Borders & Southern has been forced to abandon its biggest prospect off the south coast of the islands because it could not drill deep enough, sending shares plunging 70%.

It is the latest setback to hit exploration firms off the coast of the disputed islands and, with further failures, could ease pressure on British and Argentinian politicians who have continued to argue over its sovereignty.

The failure of Borders & Southern's Stebbing well means that rival Rockhopper is still the only company to have found viable amounts of oil in the region.

Borders & Southern revealed it had found good quality gas but could not drill deep enough without risking a collapse of the well due to high pressure.

It said: "It is very disappointing not to have reached all the potential reservoir targets in this well."

Shares closed down 44.3p at 18.3p, as the four other London-listed firms – Rockhopper, Desire Petroleum, Argos Resources and Falkland Oil and Gas – also fell.

Premier last week paid the company $231m upfront for a 60% stake and will take over the drilling of the well, which it hopes to start in 2016.

But Rockhopper has proved the exception in the area that has been big on words but small on delivery.

The most notorious announcement from the region took place in 2010 when Desire said it had hit oil, only to change its mind 48 hours later and reveal it had only found water. Shares dropped 50% and never fully recovered.

Analyst Dougie Youngson at Seymour Pierce explained that more money was needed for further discoveries in exploration that is at an early stage.

He said: "It really has been a case of mixed fortunes depending where you look. Rockhopper and Desire have had success in the north, and with Premier coming on board prospects are looking positive.

"But in the south of the island … things are at a much earlier stage with only one discovery so far."

Falkland Oil and Gas will report from its southern prospects later this year and both the City and politicians will be watching its announcement closely.

Political tensions have heated up in the past year over the islands' sovereignty – especially around the 30-year anniversary of the war between Britain and Argentina.

Meanwhile, Shell has walked away from its bid to buy London-listed oil and gas explorer Cove Energy, leaving Thailand's state-owned oil company PTT the only bidder.

The ongoing battle for Cove, which has a stake in a Mozambique gas field considered one of the biggest in the world, started in February and has seen a fierce bidding war between the two.

But in a statement, Shell said: "Shell Bidco has decided not to revise its offer of 220p in cash for each share of Cove, and not take part in the auction procedure for Cove."

Thai firm PTT Exploration and Production now have a clear run, after it offered 240p a share, or £1.22bn, 48 hours after Shell's final offer of £1.12bn in May was recommended by the board and six hours before the deadline for offers.

As a result, Cove closed down 37.5p, 13.6%, at 273p. It had been trading higher because many shareholders thought a bigger bid was due.

The Thai firm is keen to get a foothold into the booming gas exploration market in east Africa but the deal must first be confirmed by Mozambique's government, which owns a 15% stake in the Rovuma basin.

It is thought about 70% of Cove shares are held by risk-arbitrage hedge funds, whose strategy is to squeeze every penny out of a potential takeover.